Suppose that a company has total financing where 10% comes from bonds, 10% from a loan, and
Fantastic news! We've Found the answer you've been seeking!
Question:
Suppose that a company has total financing where 10% comes from bonds, 10% from a loan, and 80% from shareholders’ equity. The bonds pay on average a 10% interest rate, the loan has a 10% interest rate, and shareholders require a 10% return. The interest payment on the loan is tax deductible and the tax rate is 20%. What is the simple average cost of capital equal to?
A. 0.098
B. 0.10
C. 0.033
D. 0.073
Related Book For
Fundamentals of Financial Management
ISBN: 9780273713630
13th Revised edition
Authors: James van Horne, John Wachowicz
Posted Date: